54%(52)28 out of 52 people found this document helpful
This preview shows page 14 - 16 out of 24 pages.
February 24, 2013:Sells 75 shares of stock purchased on Septem2012, for $14 per share.March 7, 2013:Purchases 50 shares of Winston Corp. stock fshare.November 17, 2013:Sells the remaining 75 shares for $12 a share.The results of the above transactions are as follows:1. On the February 24, 2013 sale, the realized loss is $450, but $300 of it is disallowed and $150 is short-term loss (stock held less than 12 months). Only two-thirds of the realized loss is disallowed because only two-thirds (50 out of 75) is considered to be a wash sale (i.e., because 50 shares are later purchased on March 7).2. The basis of the 50 shares acquired on March 7, 2013, is $1,050 ($750 + $300).3. The loss realized on November 17, 2013, is $650, computed as follows:Selling price$900Basis: $20 × 25 shares$500March 7 stock1,0501,550 Loss$(650) It is considered long-term loss since the holding period of the stock acquired on March 7, 2013, includes the holding period from September 12, 2012, to February 24, 2013.¶10,215 PERSONAL-USE PROPERTY CONVERSIONWhen property purchased for personal use is converted to business or income-producing use, the basis for determining loss is the lesser of (1) the fair market value of the property at the time of the conversion, or (2) the adjusted basis for loss at the time of the conversion. Reg. §1.165-9(b)(2). This rule is to prevent the taxpayer from converting a nondeductible personal loss into a deductible business loss. The basis for gain is the adjusted basis on the date of conversion. The basis for determining depreciation is the basis for determining loss. Reg. §1.167(g)-1. No gain or loss results on sale of converted personal-use property if the amount realized is between the basis for gain and the basis for loss.
EXAMPLE 10.35 Terry Trudman has a residence that had an adjusted basis of $150,000 but a fair market value of $100,000 at the time of conversion to rental property. The basis for determining loss is $100,000. The basis for determining gain is $150,000, the adjusted basis at the time of the conversion. If $10,000 depreciation (computed on the basis for determining loss) is taken between the time of conversion and sale, the results under the following assumptions are:1. In a sale for $85,000, the loss is $5,000 or $85,000 – $90,000 ($100,000 –$10,000).2. In a sale for $175,000, the gain is $35,000 or $175,000 – $140,000 ($150,000 – $10,000).3. In a sale for $130,000, there is neither gain nor loss because by using the basis for gain one gets a loss of $10,000 ($130,000 – $140,000) and by using the basis for loss, one gets a gain of $40,000 ($130,000 – $90,000).KEYSTONE PROBLEMDetermine what the initial basis of an asset would be in the following situations:1. Purchase of asset2. Bargain purchase3. Lump-sum purchase of several assets4. Property acquired by gift5. Property acquired from a decedent6. Property converted from personal use to business or income-producing use7. Property acquired in a wash sale8. Nontaxable stock dividends and stock rights¶10,225 RELATED PARTIESNo loss deduction is allowed on sales or exchanges of property, directly or indirectly, between certain related parties. Without this provision, related taxpayers might enter transactions solely